Outsourcing, Off-Shoring - A Pandora Box
During the last few days, I have had conversations with quite a few people (clients and some industry professionals) on the topic of issues and challenges (as they described it) associated with off-shoring & outsourcing. I prefer to call them the realities and opportunities (instead of issues and challenges).
Over the last two decades, the strategic goals of cost reduction and focusing on managing the core and non-core activities differently, and the ‘flat world’ phenomenon have made several organizations explore the opportunities offered by off-shoring and outsourcing.
Various organizations have been riding the wave of outsourcing and off-shoring, and swimming in deep waters, whereas a few others have just been in and out of the pool (some even more than once), whilst some have not even tested the waters as yet. The results have perhaps been a mixed bag at large (often depending on which part of the world and whom you speak with – whether on the buy or sell side, and whether on the receiving or the giving end).
There are certain key trends shaping up businesses with respect to the outsourcing and off-shoring landscape.
High unemployment levels in the developed world and the socio-political environment driving demand for in-sourcing and on-shoring
High wage inflation in the developing world over the last several years, leading to diminishing cost arbitrage advantages
Developing world increasingly becoming a critical consumer market and hence the phenomenon of global footprint optimization and re-nomenclature
Organizations being challenged by dysfunctional and fragmented functional models, systems & processes, and driving the gap between desired versus actual value realization
And, while attempting to manage and be successful in such a challenging operating environment, organizations are refocusing and reconsidering their choices vis-a-vis:
Value and not just Cost
Effectiveness and not just Efficiency
Innovation and not just Standardization
Talent & Capabilities and not just Body-Shopping
Total Cost of Ownership and not just the Base Contract / Transfer Pricing
Trust and not just Control
Risk Management and not just Mitigation
Core to Business and not just Transactional
In one of the recent outsourcing industry surveys done by HfS Research, it was highlighted that 38% of the respondents considered ‘provision of new and creative methods’ to be ineffective, and 66% of the respondents considered that ‘altering the mindset of leadership from one of cost to that of value-creation’ is a mission critical and important topic.
Is there a silver bullet and an answer to these strategic choices?
In my view, it’s imperative that organizations tread on the path of off-shoring and outsourcing from a strategic and long term perspective. As a business leader, you do need to invest in the new microcosm of the organization being established.